CUNA Mutual Asks Court to Order Bank to Buy Back Failed Mortgage Securities

CUNA Mutual Group this week asked the U.S. Court for the Western District of Wisconsin to issue an order that would require RBS Securities Inc. to buy back $72 million in failed residential mortgage-backed securities.

The securities were sold to CUMIS Insurance Society and MEMBERS Life Insurance Co., both subsidiaries of CUNA Mutual in Madison, Wis.

Between 2004 and 2007, CUNA Mutual said RBS “induced” it to buy 15 certificates in 10 separate RMBS offerings by making representations about the credit quality of the pools of mortgage loans collateralizing those RMBS, according to the CUNA Mutual’s complaint.

CUNA Mutual said it relied on RBS’s quantitative representations in deciding to purchase 15 certificates in the 10 separate RMBS offerings. After CUNA Mutual’s purchases, all 10 of the securities performed poorly and the 15 certificates have since lost much of their value, according to the complaint.

CUNA Mutual said it is seeking to recover $72 million, the amount it would take for RBS to buy back the failed RMBS.

Before it filed the lawsuit, CUNA Mutual said it commissioned a forensic investigation of the loan pools collateralizing the 10 RMBS to test the accuracy of RBS’s quantitative representations. It sampled 17,949 loans from each transaction and conducted a retroactive appraisal using valuation models and historical data to test RBS’s representations about LTV and CLTV ratios. CUNA Mutual also analyzed public records to test RBS’s representations about owner occupancy rates.

CUNA Mutual said its investigation revealed that RBS’s quantitative representations in the offering documents of the 10 RMBS were false at the time they were made. Specifically, RBS “dramatically understated the LTV or CLTV ratios of the loan pools underlying the 10 RMBS.”

In its motion filed on Thursday, CUNA Mutual said CUMIS invoked a right of rescission that would require RBS Securities buy back the RMBS.

Phil Tschudy, CUNA Mutual media relations manager, confirmed with Credit Union Times on Friday the company did indeed file the motion but said the company did not have any additional comment.